ugh almost ready to give in to panic

[CitricAcid]

CA, that requires people to have a crystal ball and engage in market timing. You say people can do well if they "play" it correctly. But that's the antithesis of the passive investing promoted by most here. I don't know what Japan's culture and economy is like, but even in the US few retirees eagerly imagine themselves back in the transitory position of renting (moving is a bitch when you are 20, imagine at 70..). What if their predictions are wrong and they have just sold at a bottom?

I think it's a pretty grim affair if the only way to make money is by selling off the roof over your head in a declining market. At that point you might as well do a reverse mortgage: less trauma, no?

It is also that if a greater percentage of your net worth is in many other non-deflationary assets, such as cash. The idea is not so much that they could have had a great retirement, or that people weren't hurting, quite the opposite. It is more that with a situation like Japan's in the early 90's, they had started selling 100-year loans (hmmm, seems a lot like the interest only/negative amortization loans we have now) the real estate bubble was inevitable, so many people were hurt in the fall of the stock market. But, some of the effect of the nominal fall was mitigated by an increase in the value of the yen because of that. Just saying it was mitigated, and comparing the situation to America's now is a little premature.

 

[Hamlet]

Your PE of 23 is including massive writedowns for the financials in the last year. The real question is what the normalized earnings for the market are, and that depends on what you think the financials will earn going forward.

At any rate, there are a large number of very solid companies selling at much less than a PE of 23.

MSFT is trading at a PE of 16, and a forward PE of less than 14.

HD and LOW are at 12. Forward PE probably higher for a couple years.

WFC and USB are at 10 and 12. Forward PE probably higher for a couple years.

MMM has a PE of about 14

JNJ has a PE of about 16

GIS is at 16

WMT is at 18

There are a lot of good deals in the market right now. If you're afraid of inflation, I think stocks are a good place to put money.

Earning have fallen recently, your 16.24 might be reflecting the peak earnings and not the latest numbers. I don't have time right now to find it for you but 23 is closer than 16.24 for a "current" PE. It might be a little less after the recent swoon.

I think 7% is reasonable for a mix of stocks but that still might be a stretch. All assets went up a lot in recent years, stocks, bonds, real estate, commodities, etc. There are really no bargains out there. When saying 8 or 9%, assuming 60/40 stocks/bonds, I think that is hopeful. If you use 7% for stocks and 4.5% for bonds and go 60/40 you get around 6% total. 8.5% is 42% higher than 6%.

 

[ziggy29]

There are a lot of good deals in the market right now. If you're afraid of inflation, I think stocks are a good place to put money.

Stocks are a decent place for money in inflationary periods if businesses can pass on their rapidly accelerating costs.

I remember my dad getting raises of 10-15% during the worst of the late 1970s inflation era. Many others did as well. Because they were getting raises that kept up with rising costs (or close to it), that gave producers an opportunity to pass higher costs along -- meaning earnings could keep up with inflation. So stocks, primarily priced through earnings, could also come close to keeping up with inflation.

I could be wrong and my evidence is only anecdotal, but it just doesn't *feel* like wages will keep up with inflation or even close to it for a while. I got my usual 2% "raise" this year, and I think we know most of us need a lot more than 2% a year to break even with inflation. I don't know many people getting much more than 3% raises these days.

If wages are constrained, businesses will have a harder time passing on the full increase in their cost, particularly in a price-conscious competitive marketplace, and that likely means lower margins and reduced earnings that don't keep pace with inflation.

 

[Razor]

I remember my dad getting raises of 10-15% during the worst of the late 1970s inflation era. Many others did as well. Because they were getting raises that kept up with rising costs (or close to it), that gave producers an opportunity to pass higher costs along -- meaning earnings could keep up with inflation. So stocks, primarily priced through earnings, could also come close to keeping up with inflation.

I could be wrong and my evidence is only anecdotal, but it just doesn't *feel* like wages will keep up with inflation or even close to it for a while. I got my usual 2% "raise" this year, and I think we know most of us need a lot more than 2% a year to break even with inflation. I don't know many people getting much more than 3% raises these days.

.

That was my experience too. My wages did keep up with inflation in the 70s so I really didn't feel the pain the media said I should be feeling.

 

[clifp]

I have been pretty frustrated at trying to figure out the P/E of the S&P 500 having seen number ranging from 14-23, from a variety of source.

I don't even bother calculating P/E for the financial stocks I own, preferring to look at the Tier 1 ratio, dividend yield, and praying that banks with history of conservative lending, continued to do so during the real estate bubble.

I found this article in Sunday WSJ market blog pretty interesting. The essential point is that sales numbers are pretty hard to fake especially over a year. Although folks like Enron managed, and presumably some financials can figure ways of cooking the books also.

Is Wall Street still expensive? Not by some measures. The market's latest sell-off leaves the major indices nearly 20% from their peak. A little bit more off the Dow and we will be in an "official" bear market. The sock puppets on TV can all get very excited.
Bear markets have traditionally proven very good times to invest long-term money. And you can see the evidence of panic, and forced disposals, all around.
For real people with real lives, the interesting question now is what kinds of value Wall Street represents now.
To take a look, I've run a chart of my favorite metric: Price to sales. As you can see, on this measure we are nearly down to the levels seen at the bear market low in 2002-3.
It's true that share valuations on this measure were even cheaper until the mid-1990s. But of course shares bought then proved fabulous investments.
The picture, incidentally, is similar if you compare share prices to company net assets. We are down towards lows seen in 2002-3.
No, it's not definitive. There is no perfect answer. But it's reassuring.
The merits of comparing share prices to company sales are simple. Sales are hard to fake. And they aren't too volatile. Even a big company's earnings can double one year and halve the next, but changes in sales are much steadier.
Price to sales charts are usually excellent at showing up valuation bubbles (like Wall Street in 1999-2000) and bear market lows (2002-3).



Contrast that with some alternatives. The problem with using the famous price to earnings ratio is that earnings can swing pretty dramatically. Wall Street, at last autumn's peak, didn't look expensive compared to this year's forecast earnings. Alas, those earnings forecasts are melting away like spring snow.

The rest is here

 

[Jarhead*]

Well I just tried jumping out of a window, but I only fell 3' to the ground..

My uncle Guido had a fairly successful bus. in New York city, during the depression, and the Crash.

He was working one morning in the Wall St. Area, and one of the Brokers jumped out of a 4th. floor bldg. and landed right in the middle of Uncle Guido's Push cart.

 

[kumquat]

My uncle Guido had a fairly successful bus. in New York city, during the depression, and the Crash.

He was working one morning in the Wall St. Area, and one of the Brokers jumped out of a 4th. floor bldg. and landed right in the middle of Uncle Guido's Push cart.

Uncle Guido should have paid the protection money to my Uncles Vinnie & Gino. The broker might have 'jumped' on someone-else's Push cart. Moral: there are recession-proof businesses.

 

[RockOn]

Well I just tried jumping out of a window, but I only fell 3' to the ground.

Some people even muck up the easiest duties of life.

 

[RockOn]

II found this article in Sunday WSJ market blog pretty interesting. The essential point is that sales numbers are pretty hard to fake especially over a year. Although folks like Enron managed, and presumably some financials can figure ways of cooking the books also.

The rest is here

I think you have to be very careful with using price to sales data going back to 1990. (The DOW went from 2500 to 12,000 in that period, that may never happen again.) Try to find a chart going back to 1900, I bet the current price of stocks will look high historically when you do.

As far as the current 23 PE on the SP500, that does reflect the recent earnings of financials. Are those earnings here to stay? I don't know but some think the losses to be written off are no where near over, maybe only $300 billion of $1.25 trillion. Of course there is always another point of view. Being risk adverse, a current PE of 23 looks too rich for me to get excited about the market.

P.S. just came across this on current PE's

Earnings: The Next 12 Months? Or the Last 12? - Seeking Alpha

 

[harley]

I remember my dad getting raises of 10-15% during the worst of the late 1970s inflation era. Many others did as well. Because they were getting raises that kept up with rising costs (or close to it), that gave producers an opportunity to pass higher costs along -- meaning earnings could keep up with inflation. So stocks, primarily priced through earnings, could also come close to keeping up with inflation.

I could be wrong and my evidence is only anecdotal, but it just doesn't *feel* like wages will keep up with inflation or even close to it for a while. I got my usual 2% "raise" this year, and I think we know most of us need a lot more than 2% a year to break even with inflation. I don't know many people getting much more than 3% raises these days.

As I remember, the large wage increases weren't in sync with the inflationary costs. I spent the late 70's suffering high prices with low wage increases, then in the early 80's I made a ton in raises, which felt even better because the price pressures had slowed down.

I suspect that pattern might play out again this time, which is why we are feeling the pain so much now. Also, that late 70's experience taught me to live at or below my means. I think there are an awful lot of people who could use a dose of that right now. I blame all this on the credit card companies, in collusion with the MSM.

Harley

 

[FinanceDude]

We are probably headed for 5-7% average returns over the enxt 10 years, if we are fortunate and wind ourselves through the current perfect storm of issues........

The govt WILL raise interest rates, and taxes ARE going up, just a question of when..........

 

[Dawg52]

We are probably headed for 5-7% average returns over the enxt 10 years, if we are fortunate and wind ourselves through the current perfect storm of issues........

The govt WILL raise interest rates, and taxes ARE going up, just a question of when..........

And if cd rates get back to the 5-6% range again, going to be hard for many to stay in the stock market. I know I love my 6% PenFed cd. Best case scenario for me is the market gets back to 13,000, cd rates get in the 6% range, I bail from stocks, load the truck on cd's, and I live happily ever after.

 

[FinanceDude]

And if cd rates get back to the 5-6% range again, going to be hard for many to stay in the stock market. I know I love my 6% PenFed cd. Best case scenario for me is the market gets back to 13,000, cd rates get in the 6% range, I bail from stocks, load the truck on cd's, and I live happily ever after.

Problem is, infaltion will be running 10-12% a year, so your CDs will be getting eaten by the inflation demon.........

 

[Dawg52]

Problem is, infaltion will be running 10-12% a year, so your CDs will be getting eaten by the inflation demon.........

So will your 5-7% stock returns.

 

[statsman]

One side of the coin: inflation eating away at fixed income assets. The other side: stock returns expected to be measurably less than the past. Sounds like someone rigged the coin.

 

[youbet]

One side of the coin: inflation eating away at fixed income assets. The other side: stock returns expected to be measurably less than the past. Sounds like someone rigged the coin.

High inflation...... low investment returns..... sounds like the 70's all over again.

The reason the stagflation of the 70's was tougher on retirees than the Great Depression was that there was no place to hide, no way to get real after tax returns for the typical passive investor..... and it lasted a long time.

Very well could be what we have to look forward to now. Oh boy.......

 

[FinanceDude]

So will your 5-7% stock returns.

Don't worry...........I'm always too conservative in my predictions.......

 

[Razor]

Problem is, infaltion will be running 10-12% a year, so your CDs will be getting eaten by the inflation demon.........

A falling stock market could eat your money faster than the demon inflation. People that live below their means survive inflation better than those that don't. They adapt, cut back, substitute and make due.

 

[RockOn]

And if cd rates get back to the 5-6% range again, going to be hard for many to stay in the stock market. I know I love my 6% PenFed cd. Best case scenario for me is the market gets back to 13,000, cd rates get in the 6% range, I bail from stocks, load the truck on cd's, and I live happily ever after.

I'm not sure about your stance on SPIA's but if you live to the mortality table age you can get an IRR of over 5%, if you think you will live another 6 or 7 years (mid to upper 80's)you can get an IRR of over 6%. As long as the company doesn't default you can lock that in for life at age 55. You don't have to wait for cd rates to come up or have to hope they stay up. So why are they so bad?

 

[ziggy29]

And if cd rates get back to the 5-6% range again, going to be hard for many to stay in the stock market. I know I love my 6% PenFed cd. Best case scenario for me is the market gets back to 13,000, cd rates get in the 6% range, I bail from stocks, load the truck on cd's, and I live happily ever after.

Happily ever after or until your CDs come due at a time when CD rates are pathetic. But I guess you can cross that street when it gets there.

How do you think I feel? I'm the one who ignored the voice in my head telling me to bail out on Halloween last year when the markets (and my portfolio) were at an all-time high, and now I sit 12% below that...

 

[Dawg52]

How do you think I feel? I'm the one who ignored the voice in my head telling me to bail out on Halloween last year when the markets (and my portfolio) were at an all-time high, and now I sit 12% below that...

I wonder how many people have asked that question over the last few months? True enough on the CD rate renewals. Thats what people are facing right now if they have CD's maturing.

 

[Dawg52]

I'm not sure about your stance on SPIA's but if you live to the mortality table age you can get an IRR of over 5%, if you think you will live another 6 or 7 years (mid to upper 80's)you can get an IRR of over 6%. As long as the company doesn't default you can lock that in for life at age 55. You don't have to wait for cd rates to come up or have to hope they stay up. So why are they so bad?

I haven't ruled out buying one at some point. I will be 54 next month and have tried to set up a portfolio where I could live off of cd/bond interest and dividends. So far so good but worrying about the market is a downer. As I grow older, I would expect my fear of the market will be even greater. So I think buying a small SPIA might not be a bad way to go for this worry wart. A small SPIA + SS = monthly cash requirements, now that doesn't sound too bad to me. With my cash flow taken cake of, I probably could sleep with a small % in stocks with the majority in cd's/bonds.

Who knows, as Unclemick would say......"there is more than one way to skin a cat". Of course he also says he doesn't want any stinking annuity!

 

[W2R]

I haven't ruled out buying one at some point. I will be 54 next month and have tried to set up a portfolio where I could live off of cd/bond interest and dividends. So far so good but worrying about the market is a downer. As I grow older, I would expect my fear of the market will be even greater. So I think buying a small SPIA might not be a bad way to go for this worry wart. A small SPIA + SS = monthly cash requirements, now that doesn't sound too bad to me. With my cash flow taken cake of, I probably could sleep with a small % in stocks with the majority in cd's/bonds.

Who knows, as Unclemick would say......"there is more than one way to skin a cat". Of course he also says he doesn't want any stinking annuity!

You might be a good candidate for a small annuity at some point, especially in another ten or more years if you can hold out.

So far I seem to be OK with my Wellesley and conservative AA. I am still working, though, so despite being a natural worrier I can't really know what you are going through, completely.

 

[clifp]

How do you think I feel? I'm the one who ignored the voice in my head telling me to bail out on Halloween last year when the markets (and my portfolio) were at an all-time high, and now I sit 12% below that...

I feel your pain, but I also have to remind myself that same voice told me to bail out of all stocks and stay out the day after Oct 19,1987 crash (still the biggest). If I had followed my gut I'd be a lot poorer.

 

[RockOn]

I haven't ruled out buying one at some point. I will be 54 next month and have tried to set up a portfolio where I could live off of cd/bond interest and dividends. So far so good but worrying about the market is a downer. As I grow older, I would expect my fear of the market will be even greater. So I think buying a small SPIA might not be a bad way to go for this worry wart. A small SPIA + SS = monthly cash requirements, now that doesn't sound too bad to me. With my cash flow taken cake of, I probably could sleep with a small % in stocks with the majority in cd's/bonds.

Who knows, as Unclemick would say......"there is more than one way to skin a cat". Of course he also says he doesn't want any stinking annuity!

I hate to do this to you, but we think very similar. I'd like to see more discussions about how to get a pretty safe and fairly steady 5 or 6 or 7%. Investing in overpriced (as I see it) risky assets doesn't do it for me. I suspect there are more than the two of us out here.

I don't really like the whole concept of an insurance annuity but it is one of the only ways I currently see to get close to meeting the goal of a pretty safe and steady 5 or 6%. I'm not really ready to pull the plug on one, but I might in a few years.